Insurers run for 'cover' as lapsed policies pile up

MUMBAI: Even as insurance firms are losing over Rs 9,000 crore in annual premia, because of lapsing or non-renewal of policies, some risk management firms are sensing a business opportunity.

Insurance firms across the board are losing out on a large amount of business, as their clients fail to renew policies after a year or two. Though insurance firms do not release their exact lapse ratios, industry estimates peg the figure at 25-30%.

The problem of lapsed policies is a serious concern for insurance regulator IRDA also, which feels certain amendments need to be made to the commission structure which agents get. Typically, commission agents get from new policies are much higher than what they get for renewals.

Companies are now outsourcing jobs to revive lapsed policies to private firms. Hitesh Asrani, director at CRP Technologies, one leading life insurer, has already signed up for outsourcing such services. "We are in talks with all major insurance firms and are in the final stages of signing a deal with three more companies soon." Though this is an internationally prevalent practice, it is only recently that firms in India have started hiring retention managers. However, insurance firms are expectedly tight-lipped about such practices.

Non-renewal of insurance policies happens because of a number of reasons. The customer could have forgotten to pay his premium, or maybe, even lost interest in the policy, because there is a gap between what he is getting from the policy and what he initially expected. Mis-selling of policies is also a major cause for lapsation, and is being looked into by IRDA as well.

Mr Asrani said, "The majority of lapses happen on orphaned policies, or in the case of a customer being wooed by another firm with a more attractive policy." Due to the large churn in insurance agents and advisors, there are a large number of policies that are 'orphaned'.

Retention managers basically get in touch with the policy holder and restart the relationship between the insurance firm and the customer, which was lost when the advisor or agent in question switched firms. These agents are also likely to woo the same customers with more attractive offers from their new employers.

"Losing the existing customers is a major financial risk for insurance firms," adds Mr Ansari. Though insurance companies have their own in-house teams to remind customers of premium payments, their success ratio is lower than 50%. CRP, on its part, has 90 offices and claims to have a better reach than any of these.